Israeli Finance Minister Bezalel Smotrich attends a news conference after announcing that he will sign an order to seize Palestinian Authority funds and transfer them to the families of victims of Palestinian attacks, at Israel’s Finance Ministry in Jerusalem, January 8, 2023.(photo credit: RONEN ZVULUN/REUTERS)
The Finance Ministry revised its growth forecast for 2024 and 2025 on Tuesday, lowering predicted GDP growth for 2024 to 0.4% and for 2025 to 4.3%.
This revision follows the expansion of the war to the northern front, the ministry explained, saying that the previous prediction had been based on the assumption that the war’s intensity would continue to be as it was in September and that fighting would end after Q1, 2025.
The updated base case assumes that intense fighting will continue through most of the last quarter of 2024, which will continue to mandate a significant reserve call-up. The ministry assumed that this will be followed by a reduced call-up throughout 2025.
This revision means that the ministry’s prediction is similar to that of the Bank of Israel, published earlier this month. Israel’s central bank had predicted that GDP growth in 2024 will be 0.5% and 3.8% in 2025, or 1 and 0.4 percentage points lower than previous forecasts, respectively.
The ministry laid out several factors that could impact the growth projection, causing it to rise or fall.Bank of Israel Governor, Prof. Amir Yaron. Full trust in the financial and monetary systems. (credit: FLASH90, image processing)
Impacts on growth projection
Continued intense fighting or significant escalation could mean that workers and businesses are unable to work, which could lead to a significant impact on the economy, the ministry said.
The ministry also highlighted the loss of investor trust as potentially harming economic growth. “Maintaining the trust of investors is essential for continued foreign and local investments,” said the ministry, adding that this will allow the government to continue to fund fighting and rehabilitation.
A clear and early end to the war could increase predicted economic growth, the ministry said, adding that this would be characterized by the return of evacuees to their homes and a release of reservists.
The ministry also highlighted that continued normalization processes with Arab states could bring Israel’s risk premium down and increase investment in the country, resulting in increased economic activity.
A clear and early end to the war could increase predicted economic growth, said the ministry, adding that this would be characterized by the return of evacuees to their homes and a release of reservists.
The ministry also highlighted that continued normalization processes with Arab states could bring Israel’s risk premium down and increase investment in the country, increasing economic activity.
